How To Set Up An Estate Plan

Panupong Piewkleng / Getty Images/iStockphoto
Panupong Piewkleng / Getty Images/iStockphoto

Thinking about estate plans usually evokes an image of a wealthy family summoning their family lawyer to make sure their summer homes pass through to the children while evading taxes. Modern estate planning though is much more about organizing your financial assets to make sure they are protected from new problems, such as outside business ventures or a potential divorce — or even a pandemic. According to a new survey from Edward Jones, a third of Americans say the pandemic has triggered conversations with their family about end-of-life plans.

See: How To Talk to Your Parents About Their Estate Plan (Without Making It Awkward)
Find: 10 Estate Planning Mistakes To Avoid

An estate plan is a contract that is put in place to disperse and dispose of a person’s assets upon their death or selected time of transfer for the assets. This can include wills, trusts, powers of attorney, probates and more. It is up to the individual who created the estate plan to determine who the beneficiaries of their estate will be.


Earl Rubinoff of The Rubinoff Group says to focus on these two important points:

  • The name of the person you want to take care of and be the guardian of your children.

  • The name of the person you want to take care of your money. This is essential since you want to appoint a trustee that you can trust and who you think has sound judgment. In addition, you need to name a competent successor trustee, in case your initial trustee is disappointing, gets ill, resigns, or dies.”

An important rule of thumb before walking into an estate planning meeting is to never sit at a table where there is not BOTH a licensed financial advisor and estate planning attorney present. Each of these professionals has a different specialty which is crucial in making an appropriate plan. A financial advisor or CFP can ensure your assets are put into accounts that are easily transferable to your beneficiaries — or not, depending on what your goals are. For example, let’s say you prefer to liquidate your annuities while you are alive versus transferring them to your children. A financial advisor would then construct the distributions to be both immediate and liquid, going directly into bonds or other low-risk investments and increasing the amount of the distribution.

Had an annuity been set up as they usually are, investments might be put into target funds to last the duration of both your life and then perhaps for some years thereafter. The important thing here is that a target fund with even a 10-year horizon is invested far differently than a fund whose goal is to liquidate in the next 2-3 years.

Michael Fischer, director and wealth advisor at Round Table Wealth Management says if you currently are working with a financial advisor, they should be able to give you a basic understanding of what the role of a will or trust would have in your estate plan.

“You should also become comfortable with the terms executor, trustee, health care proxy, and guardian and the roles each one would play if you were to pass away. Also important is to understand what property your estate documents will apply to. Assets like jointly held property (bank accounts, home), 401(k)’s, IRA’s or life insurance proceeds do not pass via your will, so it is important to take a coordinated holistic approach,” he adds.

A financial advisor cannot, and should not, give you legal advice but your advisor is perhaps the best person to help ensure that your estate planning choices directly support the future of your financial assets. Having both present also ensures one is checking the actions of the other.

An estate planning attorney is also just as important, to make sure the transfer and labeling of these assets is done correctly and legally.

Learn: Family Trusts vs. Wills: What Are the Differences Between These Estate-Planning Options?

Leah Ellsworth, JD, Estate Planning Attorney for Keystone Wealth Partners stresses that the best way to set up an estate plan is to meet with an estate planning attorney who can guide the client based on their unique circumstances/goals.

“People don’t realize that even when they do not have a plan down on paper, they still have a plan. It’s just not decided by them – it’s decided by the state. An estate plan can be important at nearly every stage of life” she says.

Specifically, when children are involved, estate planning becomes even more important.

Rubinoff stresses that “setting up an Estate Plan is critical. We live in a society today where there are numerous divorced families and children from second or even third marriages. In addition, there could be children with special needs involved.”

Basic Components You Can Involve In Your Estate Plan

Russel Morgan, Founding Member of New York-based Morgan Legal Group, outlines the basic parts of common estate plans.

A Will: Perhaps the most important and vital starting point.

A Living Will: Sometimes called an advance directive, a living will is a legal document that provides instructions regarding the medical care you wish to receive should you become incapacitated. This can include instructions for DNRs, breathing tubes and feeding tubes.

Power of Attorney: This gives the person of your choosing the authority to make decisions on your behalf if you cannot. Morgan says you should have a POA for health care as well as a durable POA to handle your finances.

Living Trust: This is a legal document where your assets are placed into a trust for your benefit DURING your lifetime and then transferred to a beneficiary upon your death by your choice of representative. This allows assets to be passed directly to beneficiaries without probate, saving time and money for your loved ones.

Life Insurance: A financial advisor can easily set this up for you. Parents of minor children or homeowners should especially think about setting one of these policies up.

Tax Obligations: Only estates worth over $5.43 million are subject to federal estate taxes. Even if you are near this number make sure you have your bases covered and be sure to find out whether or not your state has any death and inheritance taxes that might affect your estate. Some states have a lower threshold than others for federal estate taxes, Morgan states.

Common Mistakes People Make When Creating An Estate Plan

One of the common mistakes people make is appointing an inappropriate trustee. This means you might trust someone now, but things change either later in life or after death. “That is why people sometimes appoint a corporate trustee like a bank or trust company” to fulfill their wishes, Rubinoff says.

Discover: How To Find the Best Life Insurance Policy for You and Your Family

Another error people make is that “people hire and pay an estate planning attorney, and then never sign their official will-trust-estate documents” he shares, so make sure to complete the process once you actually start the process.

Another big mistake people make is that they create trusts, “and they are supposed to transfer their assets and retitle their assets into these trusts, and they don’t ever do this.”

Once the trust is created, people oftentimes do not fund them properly.

Ellsworth stresses that the most common mistake she sees is the failure to properly fund the trust or people putting inappropriate funds into the trust. “Think of a trust like a suitcase,” she says, “It doesn’t matter that you have a suitcase if the items you packed in it are irrelevant once you arrive.”

Another often overlooked element in modern estate planning — digital assets. Philip Herzberg, CFP and Lead Advisor at Team Hewins asks, “Did you remember to include your digital assets after accounting for your assets, liabilities and beneficiaries?” Often overlooked, digital assets include any documents, pictures, or other information you may have stored in the cloud or on a computer. He advises listing all financial, purchasing and social accounts in your plan along with login IDs and passwords to access them. But do not list passwords or IDs in a will! This becomes public upon death, he stresses.

See: Estate Tax Rates, Limits, Exemptions and Other Rules You Need To Know
Find: How To Plan For a Financially Secure Life in the Event of a Partner’s Death

All in all, the biggest mistake people make is delaying the process altogether because it can be difficult to make some of these decisions or to face your own mortality. Wealth advisor Michael Fischer says.” People tend to put off decision making because they’re unsure if the people they’ve chosen in their estate documents are the “right” ones, usually when it comes to naming a guardian for their children, but it’s important to keep in mind that these documents can be easily changed in the future if circumstances change.” What you don’t want to happen is to pass away without estate documents and have the state make these decisions on your behalf, he adds.

More From GOBankingRates

This article originally appeared on How To Set Up An Estate Plan